Lower barriers to affluence in this fast-changing economy

November 10, 1999|By Pete du Pont

THE PACE of change is accelerating. We are in the midst of a digital revolution and, let's admit it, we are in a new era.

One innovation follows another -- personal computers, fiber-optic cables, fax machines, the Internet, cell phones, CDs, DVD players. The wonders never cease. And the best technologies are yet to come.

Big social changes often occur under the radar scope but are equally important. For example,almost one in two households owns individual stocks or mutual funds today, according to a recent survey by the securities industry.

That's up from only one in five in 1983, and the trend shows no sign of letting up. And wealth creation for many market participants has been spectacular in the 1990s.

Attainable capitalism

The implications of our emerging democratic capitalism are enormous. If most workers and retirees become heavily invested in American business, the political fallout will begin with termination of class-warfare rhetoric and politicians who rely on such demagogy.

As financial independence replaces fear and dependency, new Democrats inevitably will replace old "tax and spend" Democrats.

Presidential candidates are talking about big new government programs to pull children out of poverty, or "prosperity with a purpose," which relies on faith-based groups to minister to the poor. But a new-and-improved welfare state largely misses the point for most Americans.

Real hardship is declining in our land of abundance. Instead of finding more Americans to treat as victims, let's lower barriers to independence and affluence.

A good place to start is to find three or four things we can do to encourage the other 50 percent to become capitalists, too.

First, cut taxes, any taxes. Right now, federal taxes alone are a staggering 21.9 percent share of Gross Domestic Product, an all-time record. The Congressional Budget Office says that federal taxes will stay above 21 percent of the economy for as far as the eye can see.

More wealth

If a larger share of income were left in private hands, it would mean more investment and wealth.

Second, cut taxes on savings and investment, thereby raising after-tax returns and making investment more attractive to everyone. Good examples include abolishing the capital gains tax and inheritance taxes.

Third, privatize Social Security. If each worker had a personal investment account for part or all of his or her Social Security payroll taxes, there would be an immense gain for individual security, especially for the lower income members of the work force, as well as the economy generally.

Fourth, shift the tax break for health insurance and health care spending from employers to individuals and families. Combined with tax-free medical savings accounts, this would make health insurance portable and affordable.

Most individuals would accumulate thousands of dollars in medical savings accounts over their lifetimes, a fund to provide for their own medical care in old age and an estate for their heirs.

More democracy

Another benefit of a growing investor class would be more democracy. A major reason for declining voting and apathy about politics today is that the top 5 percent -- people making $108,00 or more -- pay more than half of federal income taxes while the bottom third pay nothing and the bottom half pay only 6 percent of income taxes.

People with an economic stake in the outcome vote more often and political participation will grow with more asset ownership.

Every political action and vote determines whether we move a little bit right or left. President Clinton vetoed the Republican bill to cut taxes. The fault lines on tax policy are pretty clear. Let the voters decide next November.

Our fluid and dynamic economy is creating higher living standards and opportunities for most of us. Let's widen the opportunities for more Americans.

Pete du Pont is a former Republican governor of Delaware and the policy chairman ofthe National Center for Policy Analysis, a non-partisan, public policy research institute.

Pub Date: 11/10/99

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